Camarda’s investment philosophy is based on an academically proven approach. Value investing basically looks to buy quality investments for less than their “true value”. Mispricings are common in the market, which means you can find good deals if you look properly.
Camarda believes impressive bargains can be found, if you know where and how to look. While they can take patience and time to ultimately pay off as the market eventually appreciates true value, this approach has been proven in study after study to beat the market over time. We basically try to buy quality investments cheap and sell at fair value, then replace with something else that’s cheap.
Warren Buffett is probably the best example of this technique. He famously said, “Price is what you pay, value is what you get…I like buying quality merchandise when it’s marked down.” His partner, Charlie Munger, said “all intelligent investing is value investing – acquiring more than you pay for.” The approach uses hard accounting data like price to book value, strong cash flow, and so on. It basically looks to buy quality stocks but only when they go “on sale.” Over the long term, value investing has beat growth stocks by 47%. Here are some key concepts:
- Value investing – targets underpriced stocks
- Strongest academic evidence to beat market
- Goal – buy at discount to “true” intrinsic value
- Sell and replace as market reflects real value
- Warren Buffett – textbook example of this approach
- Analyzes fundamentals like companies’ accounting data
- Price to book, price to cash flow, price to earnings, return on assets are common measures
- Long term: value stocks beat growth by 47% (13.5% vs. 9.2% annualized)
- Goal to buy stocks for less than they are worth and sell at fair value
For us, successful investing comes down to this. Let the markets work for you. Short-term market performance can jerk investors around like crazy, and dupe them (and their advisors) into making bad decisions. There’s an entire academic field called behavioral finance and the basic finding is that humans are hardwired to make the wrong emotional decisions on investments, and need to be very disciplined to counter this. In many ways, this can be one of a good advisor’s biggest values – acting as the voice of reason and saving investors from themselves. Left to themselves, many investors get stuck chasing past performance, which usually bites pretty hard when things reverse. In contrast, well-structured portfolios can be very predictable and profitable in the long term as long as you stick with the discipline. They are also easier to live with. So here are the keys:
Harness the factors proven to enhance returns – stocks go up big in the long term, small caps go up more, underpriced stocks go up even more, and very profitable companies go up more than average ones. Diversify enough to control risk and get a shot at the big winners. Emotions, gut feelings and knee-jerk decisions usually steer investors wrong – instead, focus on the long-term destination, and let us help you stick to that course. Here are some key concepts:
- Let markets work for you – exploit long term trends
- Don’t chase past performance – it often reverses
- Harness factors academically proven to enhance returns
- Equity premium: stocks outperform bonds
- Small cap premium: smaller stocks outperform larger stocks
- Value premium: underpriced stocks outperform by many, many times
- Profits premium: more profitable companies make more profitable investments
- Diversify widely and outside US
- Control emotions – gut reaction often worst course of action
- Look beyond the headlines – don’t be swayed by media
- Steer by your investment horizon – not short-term turbulence
